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‘A tale of 2 recessions’: As rich Americans get richer, the bottom half struggles

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The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.

The result is a splintered economic picture characterized by high highs — the stock market has hit record levels — and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.

The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.

The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.

Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.

“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership — leadership we didn’t have, and still don’t have.”

Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didn’t have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to a new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.

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And while the employment rate for high-wage workers has almost entirely recovered — by mid-July it was down just 1 percent from January — it remains down 15.4 percent for low-wage workers, according to Harvard’s Opportunity Insights economic tracker.

“What that’s created is this tale of two recessions,” said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. “There are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.”

Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.

But economists say that argument fails to see the larger picture, one where roughly a million laid-off workers are filing for unemployment benefits each week, millions more have seen their pay and hours cut, and permanent job losses are rising. The economy gained 1.4 million jobs in August, the Labor Department reported Friday, but the pace of job growth has slowed at a time when less than half of the jobs lost earlier this year have been recovered.

Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle — or even seeing their situation deteriorate further.

“If you just look at the top of the K, it’s a V — but you can’t just look at what’s above water,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “There could be a whole iceberg underneath it that you’re going to plow into.”

The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.

Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.

The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.

“The haves and the have-nots, there’s always been a distinction,” Sahm said. But now, she added, “we are widening this in a way I don’t think people have really wrapped their head around.”

A store going out of business
A customer leaves a retail store, which is going out of business, during the coronavirus pandemic. | Lynne Sladky/AP Photo

Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.

Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker — even as middle- and high-income consumers are still spending less.

But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed — and since Congress appears unlikely to extend it any time soon, if at all — “we’re likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,” Akers said.

The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.

In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.

At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.

Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.

“This is a case where the averages tell a different story than the underlying data itself,” said Peter Atwater, an adjunct economics professor at William & Mary.

While Republicans appear to be embracing the idea of further “targeted” aid, they are also touting what Trump has called a “rocket-ship” economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.

“There’s no question the recovery has beat expectations,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.

Talks between the White House and Democratic leaders, meanwhile, have been stalled for weeks. The Senate is set to return from its summer recess next week with no clear path forward on a relief package.

“People are in these bubbles,” Atwater said. “And if people aren’t leaving their homes, are not really getting out, it’s unlikely that they’re seeing the magnitude of the downside of this K-shaped recovery.”

This article originally appeared at Politico on September 7, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.


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The Lilly Ledbetter Fair Pay Act Took Us Back to the Status Quo: Gender Discrimination Lives On with the Gender Pay Gap

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Rebecca PontikesAmerican women were appalled when the U.S. Supreme Court snatched away Lilly Ledbetter’s gender pay discrimination victory over Goodyear Tire because Ledbetter did not know about repeated gender discrimination in pay at each moment it occurred.  In a decision that ignored workplace norms and realities, the Court explained that Ledbetter lost her right to sue for unequal pay because she did not meet a legal time limit for each discriminatory paycheck (even though she was unaware about the discrimination as it occurred).  The outcry started with Justice Ruth Bader GinsbergIn reading her stinging dissent from the bench, she observed “Pay disparities, of the kind Ledbetter experienced, have a closer kinship to hostile work environment claims than to charges of a single episode of discrimination.”  Ledbetter v. Goodyear, 550 U.S. 618 (2007).  The law recognizes that someone in a hostile work environment might take some time to piece it all together and sue, and that worker is not penalized for the time that realization takes with a strict time limit.

Congress reacted, and on January 20, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009.  The Ledbetter Act makes the time limit to bring a lawsuit for discriminatory wages more like that for a hostile work environment, making it a violation of Title VII every time someone receives a discriminatory paycheck and making recovery available for older violations if they are similar to newer violations.   Although there was much rejoicing, the Ledbetter Act did not radically change the law.  The only effect of the Ledbetter Act was to return the discrimination laws to their original purpose: to eradicate discrimination.

What the Ledbetter Act did not address was the troubling claim by the majority that Ledbetter’s later paychecks could not have been issued with the discriminatory bias because the supervisors who continued to pay less because of her gender did not make a decision to pay her less.  Ledbetter, 550 U.S. at 629.  By focusing on a literal, conscious, deliberative decision the U.S. Supreme Court discounted the role of reflexive bias (acting on gender stereotypes) in managerial decisions, including setting pay, which leads to discrimination. The discriminatory effect of reflexive bias is real.  Supervisors acting on stereotypes or on reflexive biases often make decisions based upon stereotypes about male and female roles, including deciding to pay men more and women less, even though they are not making a literal, conscious choice to discriminate and might even think of themselves as unbiased.  A decision to pay a female employee less might not be generated by a hostile thought process, yet the effect is just as illegal as a deliberate decision to act with discriminatory intent.  Stereotyping as illegal discrimination is not a new idea for the U.S. Supreme Court.  While it seems to have ignored it here, in Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), the Court recognized that making a decision based on stereotypes about women or men, including how much (or little) to pay them, is discriminatory and illegal.

Historical wage data illustrates the significant effect of unconscious bias on decisions determining women’s pay.  In 1979, the first year for which comparable earnings data are available, women earned 62 % of male salaries.  By 2010, decades after Title VII and the Equal Pay Act had been in force, the gap had narrowed significantly, with women earning around 79 to 80% of the average male weekly wage.  However, it took over thirty years for the gap to narrow, and the gap has not budged since 2004. Women in the Labor Force: A Databook (2010 Edition)” Table 16, U.S. Dept. of Labor, U.S. Bureau of Labor Statistics, July 2011.  Even more disturbing are the statistics for working mothers.  While a childless woman earns 94 cents of a childless man’s dollar, mothers earn only 60 cents of a father’s dollar, even less than all women earned in comparison to all men in 1979.

Experimental research shows that mothers in particular are subject to pervasive reflexive gender bias.  In one study, test subjects were asked to review resumes that differed only in noting parental status.  The reviewers systematically rated childless women and fathers significantly higher than mothers on competency, work commitment, promotability, and recommendations for hire.  Reviewers gave mothers the lowest wage offers, averaging $13,000 less than wage offers made to fathers. Shelley J. Correll, Stephen Benard, and In Paik, Getting a job: Is There a Motherhood Penalty?, 112 Am. J. of Soc. 1297-1338 (2007).  This phenomenon occurs whether the woman is a low wage worker or a highly paid one. (See Chris Fleming, Gender Gap In Starting Physician Salaries Is Growing, Health Affairs Blog, February 3, 2011)  It is no surprise that among mothers in management, there is a gender pay gap relative to fathers ranging from 21% to 34%.  The wage gap among childless managers is notably lower than the wage gap, at 17% to 24%.  See Testimony of Michelle J. Budig, Assoc. Prof. of Sociology, Faculty Associate, Center for Public Policy Administration, Univ. of Massachusetts at Amherst, “New Evidence on the Gender Pay Gap for Women and Mothers in Management,” Sept. 28, 2010.  Putting these findings together, it is clear that there is a substantial bias against mothers, whether deliberate or unconscious, in the workplace that is causing a sizable gap between working mothers’ compensation and childless women and all men.

While the Ledbetter Act was certainly important to reverse the U.S. Supreme Court’s limitation on employee rights, it did nothing to address the status quo of wage inequality for women, particularly for working mothers.   What we now need are laws that address unconscious gender bias and combat enduring stereotypes about gender roles. One measure to combat this act is the Paycheck Fairness Act (“PFA”) (H.R. 377 and S. 84).  The PFA would change the manner in which female-dominated positions are valued, with provisions limiting an employer’s defense that compensation was based on factors “other than sex,” expanding damages, and proposing guidelines for employers on evaluating jobs without gender bias .  Although the bill has been introduced in the Senate since 2009, it has never mustered enough votes to pass.  In January 2013, Senator Milkulski has reintroduced the bill and it is currently sitting in committee. When a law like the PFA passes, we can make progress in addressing the invidious and unconscious discrimination that perpetuates the gender wage gap and finally close it.

About the Author: Rebecca Pontikes has been practicing law since 1997.  She has a passion for employment law and civil rights that drives her practice. In addition to employment, she also has brought suit under Title IX on behalf of a sexually assaulted student.  She is a graduate of the University of Michigan Law School and of Tufts University and is admitted to the Massachusetts bar, the Federal District of Massachusetts, and the First Circuit.  Her peers selected her as a “SuperLawyer” in 2004, 2007, 2008, 2009, 2010, and 2011.  Massachusetts Lawyer’s Weekly named her a Top Woman in Law in 2012.  She lives in Cambridge with her husband.


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